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Poverty

Two ways of depicting the same data on poverty

These two graphs are depicting the same information is different ways. Both relate to the distribution of consumption per person in the developing world. Both are from the same data source, using the methods described in my paper with Shaohua Chen, “Developing world is poorer than we thought” (though I have updated the numbers to 2011).

Two graphs of same data

Graph (a) in the left gives the poverty incidence curves (PICs) for 1981 and 2011. Each point on the vertical axis gives the proportion of the population of the developing world living below the point on the horizontal axis. The lower panel in (a) gives the vertical difference between the two (2011-1981). We see a decline in the poverty rate for all possible poverty lines. This also implies that virtually all sensible poverty measures will show a reduction in poverty over this 30 year period. (These claims use well known results from the litertature; see Chapter 5 of EOP).

Graph (b) gives instead the horizontal difference at each percentile. This is the absolute growth incidence curve (GIC). (The concept of the GIC comes from another paper with Shaohua Chen, “Measuring pro-poor growth“). Consistent with graph (a) we see a gain at all levels. But what is also striking in (b) is how much smaller the absolute gain is at the bottom (for the poorest percentile on the left). This is a case of rising absolute inequality.

I have come to realize recently that many people who have learnt that absolute poverty measures are falling in the developing world, and are naturally pleased to know that, are surprised at graph (b), and some are even shocked. But they are just two ways of representing the same information.

Yes, poverty is falling (graph a). But it is coming with rising absolute inequality (graph b).

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